Taxation in Saudi Arabia

Updated on Friday 28th May 2021

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When looking for a country to do business or work in, the taxation system is one of the most important aspects foreigners consider. From this point of view, Saudi Arabia has all the necessary “ingredients’’ to attract investors and qualified employees at the same time.

In Saudi Arabia, the tax system does not imply any levy on natural persons, as long the income derives from employment, while the taxation of companies is advantageous and favors foreign investments.

Below, our company formation agents in Saudi Arabia explain how taxation works in this country. We invite you to discover the main Saudi taxes and to rely on us for various services.
 

What levies does the Saudi tax system comprise?


Just like in other countries, in Saudi Arabia, the tax system is made of several levies. These are:
 
  1. the income tax which is levied on different types of earnings;
  2. the corporate tax which is applied to local and foreign companies;
  3. the capital gains tax which is one of the levies that needs to be paid by natural persons;
  4. the Zakat payment which is a special donation imposed on the surplus income of taxpayers;
  5. the value added tax which is the newest levy entered in the Saudi taxation system.

It is worth noting that in Saudi Arabia the tax rate depends on the industry a company operates in.

If you want to open a company in Saudi Arabia, you can rely on our local consultants.
 

Tax residency in Saudi Arabia


In many countries in the world, in order to impose a tax, residency is taken into account. This is also the case of Saudi Arabia where the tax assessment relies on the residency of the payer.

Foreign investors will be liable for the income tax in Saudi Arabia, while nationals will subject to the Zakat. Considering there are many foreign entrepreneurs working in partnerships with local ones, their companies are taxed under a mixed system where the foreign party will pay the Saudi tax, while the local one will be subject to the Zakat.

With respect to the Saudi Arabia tax rate, it depends on the sector of activity the business operates in with the mention that higher rates apply to companies in the oil and hydrocarbon production.

The Saudi taxation system is not complicated, however, there are key aspects that need to be considered and that can be explained by our accountants here.

Apart from the local Saudi tax system, there are also the double tax treaties that enter into effect and under which foreign investors can benefit from various deductions.
 

Changes in the Saudi Arabia tax legislation


In 2018, there were several novelties that were introduced in the taxation system. One of the most important was the introduction of the value added tax (VAT), and the other was the abolishment of the Natural Gas Investment Tax which now implies the taxation of investments in the natural gas sector at the standard rate of 20%.

Our specialists in Saudi Arabia can offer more information on the latest laws applicable here. Also, if you decide to open a company in this country, you can rely on us for assistance in registering with the Tax and Customs Authority in order to obtain tax and VAT identification numbers.
 

Saudi Arabia and the main tax rates applicable here


When it comes to doing business in Saudi Arabia, the tax rate at which the income levy applies is very important. For corporations, the following rates are currently available:
 
  • the standard rate is set at 20% and it applies to most companies, except for those in the oil and hydrocarbon production;
  • businesses in the oil and hydrocarbon sector are taxed at rates ranging between 50% and 85% depending on the level of investment;
  • the Zakat applied to Saudi nationals is set at 2.5%;
  • the VAT is imposed at one of the lowest rates in the world – 5%.

Returning to companies in the oil and hydrocarbon production industry, the rates apply as follows:
  • the 50% rate is available for investments of more than 100 billion USD;
  • the 75% rate applies to investments between 60 and 80 billion USD;
  •  the 85% rate is established for investments of up to 60 billion USD.

You can rely on us for various services in Saudi Arabia, including audits for your company.
 

The capital gains tax in Saudi Arabia


Capital gains are taxed at a rate of 20% on the disposal of shares in a local company by a foreign shareholder. There are also several exemptions from this levy.  One of them is the disposal of securities traded on foreign stock exchanges.

Saudi Arabia also has a holding company regime which is similar to those in European countries.

If you are interested in doing business in Saudi Arabia and need information on the tax system, please contact our consultants.